Valero Beats Estimates, Will Study Spin-Off of Retail Business

Valero Energy Corp. (NYSE: VLO) reported second-quarter earnings per share (EPS) of $1.50 on $34.66 billion in revenue this morning. EPS was up sharply from $1.31 in the same period a year ago, and revenue was up from $31.29 billion, a jump of 11%. The results compare to the Thomson Reuters consensus estimates for EPS of $1.43 and $32.62 billion in revenue.

The refiner and ethanol producer raised its guidance on capital spending from $3.5 billion to $3.6 billion, which the company said was due to bringing forward some projects originally scheduled for completion next year. Capital spending in 2013 is expected to fall to $2.0 billion $2.5 billion as a result.

The company’s chairman and CEO noted:

Our goal continues to be the creation of long-term shareholder value combined with maintaining our investment-grade credit rating.

To that end, Valero plans to seek a tax-efficient spin-off of its retail operations:

After careful consideration, we believe a separation of our retail business from the remainder of Valero by way of a tax-efficient distribution will create operational flexibility within the businesses and unlock value for our shareholders. As independent companies, both retail and the remaining business will be better-positioned to focus on their industry-specific strategies.

Valero’s operating income from its ethanol segment fell from $64 million in the second quarter of 2011 to just $5 million this year, due primarily “lower gross margins as excess industry ethanol inventories held margins at low levels.” The company has idled at least three of its ethanol plants as a result. Operating income rose slightly, from $1.3 billion to $1.4 billion, on higher throughput margins and an increase of 342,000 barrels a day of throughput, due mainly to the addition of two European refineries.

Shares are up nearly 5.5% in premarket trading at $27.50 in a 52-week range of $16.40 to $28.68. Thomson Reuters had a consensus analyst price target of $34.71 before today’s results were announced.

Paul Ausick